In Perspective - (Can’t get no) Satisfaction

Brian Santo, Editor-in-Chief

MSOs' deal with Verizon Wireless hurts competition.

Comcast, Time Warner Cable, Cox Communications and Bright House Networks plan to sell their spectrum to Verizon Wireless. If that goes through, the MSOs and the carrier intend to market each other’s products.

The MSOs have strong, competitive triple plays. Bundle in one of the most attractive wireless services available, and all of the companies involved will be able to offer a quad play that consumers should find very appealing.

And while that is a very good thing, the problem is that the arrangement doesn’t do much for competition.

The MSOs that are selling spectrum to Verizon Wireless dominate many of the markets in which they operate. Meanwhile, Verizon Wireless is half of a duopoly with AT&T.

Having one superior quad-play option and several less attractive options is unlikely to produce for consumers the full benefits of competition.

Depending on whether you believe what T-Mobile was saying before or after its deal with AT&T fell through, having two good choices supplemented by several less popular options doesn’t constitute healthy competition. I’m siding with pre-broken-deal T-Mobile: It doesn’t.

If you think you disagree, let’s talk about how happy the cable industry has been with the Motorola/Scientific Atlanta duopoly. But I digress. …

As for the cross-marketing arrangements, it’s not clear if Comcast, Cox, TWC and Bright House are going to have any restrictions on where they can offer these quad-play deals. It will be intriguing to find out if they will be able to bundle Verizon Wireless in the same markets where Verizon is bundling DSL or FiOS with Verizon Wireless cellular telephony.

It turns out that one of the first test markets for MSO/Verizon Wireless cross-marketing will be with Comcast in Portland, Ore., where the issue conveniently won’t come up. Verizon had introduced FiOS in some neighborhoods in the Portland metro area, but then it sold those operations to a company that failed to support the service.

The next and more important question is whether this deal, which is neutral-to-bad for competition in the short term, could be built upon to improve the competitive environment later? Maybe.

The only potential for real competition is if AT&T, T-Mobile and other wireless carriers were to hook up with cable companies, too. But it can’t be with different cable companies in different markets. If encouraging competition is a goal, then that would be pointless because cable companies rarely compete with each other.

It has to be with the same cable companies that can already bundle in wireless service from Sprint or Verizon Wireless (they’re pretty much the same ones).

Furthermore, it has to be with all MVPDs, including the satellite guys. If everyone could negotiate similar arrangements, that could help make the quadplay environment more evenly competitive. And everyone would have to offer roughly equivalent terms to all partners.

Conversely, for quad-play competition to be meaningful, each MVPD ought to be able to offer more than two practical choices of a wireless carrier in their bundles.

Hard to imagine what, if anything, could compel everybody involved to start wheeling and dealing like that anytime soon, though. Verizon Wireless got valuable spectrum in exchange for its deal with those four MSOs, and that was a one-time situation. It’s hard to imagine AT&T risking competing directly with itself, especially lacking the incentive of gaining additional spectrum.

But you never know – after all, who saw the MSO/Verizon Wireless deal coming?

The FCC has little-enough justification to prevent the MSOs from selling their spectrum holdings to Verizon Wireless, but the MSOs did submit to the FCC their marketing plans with Verizon – strictly as a courtesy, they say. If the FCC has any standing to dictate that those marketing deals will not be exclusive (or not exclusive for long), it should consider imposing the condition.

But that alone won’t be enough to encourage legitimate, universal competition in the U.S., because it merely allows for the option of competition in the quad play, and only in the quad play, and only in some markets.

As it stands, there are plenty of markets that see anemic competition for the triple play, including most of the Northwest.

Verizon spent about $20 billion on FiOS. With just less than 4 million subscribers, using cocktail napkin math, that’s about $5,000 a subscriber – which is, after all, only a few hundred dollars per sub more than Time Warner Cable paid for Insight or Cablevision paid for Bresnan. But Verizon is done building out FiOS; elsewhere it bundles DSL with DirecTV.

AT&T U-verse has been remarkably successful with limited bandwidth, backed by prayers that upgrades of DSL won’t be required all that soon, and that when they are necessary, they won’t cost too much. CenturyLink simply bundles with DirecTV.

And then there are vast swaths of less densely populated areas that are waiting merely for one practical broadband provider, let alone two.

So while all of the companies involved can be commended for getting something they each wanted, from a consumer standpoint, some access to a genuinely valuable quad play in some markets is great, but the industry has a long way to go yet, and it’s not clear if it’s moving in a positive direction.